AI Still Major Theme for Investors Heading Into New Year

Bloomberg

Watch AI Still Major Theme for Investors Heading Into New Year - Bloomberg on Dailymotion

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00:00AI has been the market this year, last year. A big question is, does that become the market

00:06once again for 2026? I wish I could say there's going to be some big new theme that we're all

00:11going to get to focus on for 2026. Maybe quantum. I don't really have the crystal ball, but I mean,

00:18it's clear that from both the equity market side and then also the debt side, the focus is still

00:23on AI because now we're not only seeing like equity strategists pile into this theme, but

00:29we're also seeing now anyone who's a debt investor, whether it's an investment grade company

00:34tapping into debt to build out a data center or even some of those lower rated companies

00:39as well. So AI still the theme, but it's interesting that today we're seeing a pretty risk on day in the

00:47market. Usually if we were to get good economic data, we would see small caps rallying. We would

00:54see more like economic cyclical companies outperforming, but today tech is higher,

00:59financials higher, utilities are higher. What do you think? Why do you think the reason for that

01:03is? I mean, when you talk about four plus percentage points on GDP growth, consumer spending holding up,

01:09business spending still holding up. And I understand you had some softness with regards to consumer

01:12confidence and maybe with business orders overall, but that still sounds like a stable economy, which

01:17I think would benefit small and mid caps. Yeah. I think for today and probably tomorrow and next

01:23week, it's low volume. We're about 35% less volume than the past month right now. There's not really a

01:29reason to sell tech, particularly as we're focusing on AI for 2026 as well. I think traders are feeling

01:36like any of the traders who are still on wall street, still at their desks, why mess with what has

01:42worked already. And when we have a day where, yes, we got this consumer confidence data, that's

01:47potentially signaling, you know, what could come ahead. Why would you sell on a day when the GDP

01:54surprises so much to the, to the upside? There's not really like a reason to be bearish right now,

01:59apart from the Fed doesn't cut as much. And therefore, maybe that's why Bitcoin's down a little

02:04bit. What are you seeing in terms of that trade? Yeah. So that's, it is surprising. I mean,

02:09we do have rates a little bit higher today, especially in the front end, which again,

02:13could suggest if the economy is too hot, maybe we don't need a rate cut. But if you look at what

02:18some of the strategists were saying, even Wells Fargo weighing in saying, you know, the economy's

02:23hot. Investors should pay attention to the positive trends. We believe the next 12 months will favor

02:29U.S. equities based on our expectations for higher U.S. GDP, broadening, accelerating earnings

02:35growth, moderating inflation, and improved global growth. At the end of the day, economic growth

02:40drives earnings, drives stock prices. So I think that's kind of the bet right now, less focus on

02:47this potentially keeping inflation higher and then keeping the Fed. And is that what the catalyst is?

02:52The next catalyst for investors more broadly is going to be fundamental data. It's going to be

02:56earnings. It's going to be seeing which companies are able to drive forward productivity and revenue.

03:01Yeah, I think that'll be a focus, particularly when it comes to AI. I know that you focus on this.

03:06There's been all of this CapEx spending on AI in 2025. Are we going to see it actually pay off

03:13next year? So I think patience is needed. But some of the rotation that we've seen over the last couple

03:18of months seems to suggest that the idea that people are moving away from, or not necessarily moving

03:22away, but trying to look beyond just the picks and shovels, the chips, et cetera, and start to look at

03:27maybe like the financial companies that will have greater productivity, or the retailers that will

03:32find better ways to use AI and this technology to get you to buy whatever it is they want to buy.

03:37And it seems like a lot more people are trying to look for those opportunities now than maybe what

03:41they were 12 months ago. Yeah, you hear a lot of people, again, talking about the broadening out

03:45of the rally, that maybe this is the time that you want to pivot into the equal weight S&P 500,

03:51for example, over the cap weighted S&P 500 that we all know. I will caveat again, though,

03:58that people were saying that at the beginning of 2025, that this was going to be the big year

04:03of the rotation. And there was so much talk of sell America, particularly in April after the tariffs.

04:08And this has been another example of why would you short the S&P 500? Like if you just buy SPY

04:15and you hold it, you're up almost 18% year to date, despite all of the volatility. So

04:21definitely people talking about the rotation, but, you know, at least in ETF world, people are

04:26still buying SPY. I mean, there has been that frothier part of the market come out, though.

04:31Oh, yeah. The momentum trades, I mean, dare I say, quantum got a lot of the bubble pushed out of it.

04:35A lot of the power names suddenly got a little bit deflated. Also, the crypto space has just been

04:40really painful for the ETF landscape as well. Oh, absolutely. So the Bitcoin ETF, BlackRock's ETF,

04:46it's one of the top inflow funds for the year, people piling billions into there. But I think

04:52it's a negative return right now. I mean, Bitcoin, yeah, down 6% year to date. That was a hot theme.

04:59If you go on BlackRock's website, they're still touting, you know, one of the hot themes,

05:03buying Bitcoin. It really didn't pay off for a lot of people. If you got in at the beginning of the

05:08year, you're negative, you're down.

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